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Units top houses as investment

John Collett

Investors are able to achieve higher rental yields on units. Photo: Jessica Shapiro

Units are proving a better investment than houses, with unit prices growing 1.1 percentage point more annually than house prices over the past five years - or altogether 5.62 percentage points more, thanks to the effects of compounding.

Property researcher RP Data shows that while capital city unit prices grew by an annual average return of 2.9 per cent over the five years to December 31 last year, house prices grew by only 1.8 per cent.

Cameron Kusher, RP Data senior research analyst, said over the very long term house prices had actually outperformed units but the reversal in the trend over the past five years is explained by a number of factors.

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‘‘Affordability is a key factor, particularly in a market like Sydney where the median house price is about $165,000 more expensive than the median unit price,’’ Mr Kusher said. ‘‘Many people still aspire to live in a detached home but the reality for many is that units are a better option.’’

Owner-occupiers can live closer to the city centre, whereas for the same price for a detached house they would have to live further out, he said.

Investors are also able to achieve higher rental yields on units than with houses. Mr Kusher said the gross rental yield on capital city houses was 4.2 per cent and 4.9 per cent for units.

Sydney v Melbourne

However, there is a marked difference in relative price performance between houses and units in the two biggest property markets of Sydney and Melbourne.

In Sydney, units have clearly outperformed houses. The average annual price growth for Sydney houses over the past five years is 2.7 per cent and 3.6 per cent for units.

But in Melbourne, where there is an oversupply of units, the gap is smaller. Melbourne house prices show an annual average growth of 3.3 per cent compared to 3.9 per cent for units.

There was still a lot of supply to come on, particularly in Docklands and Southbank, Mr Kusher said.

‘‘It will be interesting to see if, over the next few years given that there are concerns about an oversupply of units, the outperformance of Melbourne’s unit market holds,’’ he said.

36 comments

Oh, spare me.

Units can not outgrow houses, simply because they can not.

In real estate the only thing that appreciates is land. Brick and mortar depreciate.

And you buy very little or no land when you buy a unit. Strata title entitles you to "air space". All you own might be just pile of second hand building materials.

Statistic comes down simply to the fact that so called "expert" are incapable of interpreting it."Growth data" is based on sale data. Nobody with a single live brain cell would currently risk buying property in top price bracket - that means that only cheap houses sell, and owners of posh houses simply cling on to them.

Units on the other hand are less dependent on land supply constraint - and can be built in great numbers. Amazingly, new units are more expensive than old tired ones. Hence the "growth".

And talking of investment - can you buy unit and then build the house on its place? I am afraid when you have bought unit the only thing you can do is to watch it dating and losing its appeal and value.However, the only thing which would not let you to build many units in place of a house - is couple of signatures on a piece of paper. Most of the units these days built on the places where houses were. Wasting money on units at the time when major cities running out of land - it is financial insanity. People in their right mind do not buy units.

Commenter

dinkumnet

Location

dinkumnet.com

Date and time

January 16, 2013, 11:35AM

this is all about boosting interest in Sydney where the state government has introduced $15k bonus for first home buyers, nothing more, nothing less. Once again a disguised stimulus for the gullible.

Commenter

APS

Date and time

January 16, 2013, 12:17PM

@dimkumnet. Did you make a loss on the sale of your own unit? That's the only reason I can come up with as to why you are so misguided in your understanding of unit property prices! Back to school.....

Commenter

sleeuk

Location

Sydney

Date and time

January 16, 2013, 12:40PM

@sleeuk - If you had any idea of property investment - you would have known that the cornerstone rule is to never sell your investments unless you made a mistake. How I could lose money on sale of a unit if I never wasted my money and borrowing capacity on one?I am planning to own units, but this it will happen through redevelopment of the house blocks I own. Whereever bargain comes along within 1 km of a train station - I snap it - sooner or later this land will have to be rezoned to high density.

Units under $400K in price do not make any sense whatsoever - because low price means the area has no culture of unit living. But to waste $400K on a unit where I can get a house for $300K in Metro Sydney - it would be the silliest thing I can imagine.

Besides I know about two dozens of other reasons not to get into units.

Commenter

dinkumnet

Location

dinkumnet.com

Date and time

January 16, 2013, 1:59PM

Do the calculations include the strata fees + any sinking fund paid ? in Sydney CBD fpr some apartments it could be up to $10,000 per year... you cannot ignore that for return calculations.

Commenter

PDesS

Date and time

January 16, 2013, 11:35AM

Try living in an area prone to natural disasters as well - the insurance companies price gouge (and that's if you can even find one that's willing to cover you).

Commenter

J

Date and time

January 16, 2013, 11:52AM

Also do your calculation, borrowing 165k more and paying interest.

Commenter

BrisbaneGuy

Date and time

January 16, 2013, 12:23PM

Why wouldn't insurance cost more, or be unavailable in an area prone to natural disasters? If you want to build (or rebuild) on a floodplain, or on a northwest facing hill covered in bush, no worries, but surely you'd expect your insurance premium to reflect the risk?

Commenter

Bemused

Location

Hobart

Date and time

January 16, 2013, 1:07PM

On the heels of yesterdays poor 26 yr old pharmaceutical rep who only has $460k to spend - this will be welcomed news

Commenter

gman

Location

nsw

Date and time

January 16, 2013, 11:44AM

So 2.9% pa over the last 5 years is considered an 'investment'? No thanks. I'll keep my money in the bank.